The original purpose of credit counselors was to act as a liaison between credit card holders and issuing companies to negotiate lower both interest rates and monthly payment plans for borrowers that were falling behind in their credit card payments. The service was originally provided to consumers by organizations like The National Foundation for Credit Counseling and its main affiliate, Consumer Credit Counseling Services. These non-profit organizations can now be found in just about every major city in the U.S. 

Prior to the 1990’s, overall consumer debt grew year to year but at a relatively slow pace.  Consumer debt growth began accelerating in the late 1980’s to the point where, ten years later, it was rapidly escalating by the billions of dollars each year. Due to the accelerating numbers, the servicing of consumer debt started being looked at as a high growth business opportunity. Hundreds of new companies began entering the field seeking to provide similar services on a “for-profit” basis using company names that incorporated credit counseling or similar terms in their title. By aligning themselves alongside the non-profit organizations these companies fed off of the goodwill attributed to them while operating with well-funded advertising budgets and executive salaries.  

 Whether an organization is for or non-profit, compensation is paid by credit card companies who return a percentage of the consumers’ payment as a fee. The difference in compensation between the two was the size of the fees paid. The new for-profit companies were able to use their influence and the sheer number clients they represented to negotiate larger fee payments. The larger fees in turn allowed for larger advertising budgets, salaries, and profits.

Many firms that position themselves as credit counselors often operate in areas that aren’t defined as credit counseling at all. These companies generate additional fees by arranging referral agreements with bankruptcy attorneys, mortgage brokers, and real estate agents. The arrangements may or may not be disclosed to the consumers using their services. Additional services outside the realm of credit counseling like debt settlement may also be offered under the guise of credit counseling.      

The nature of credit counseling has changed in many ways over the last ten years as non-profit organization are out-marketed by for-profit companies that now populate the category. Many of these companies deliver positive results and do good work for their clientele but there are many less reputable firms that operate at the expense of their customers for their own profit. If you are considering using the services of a credit counselor, check for referrals and ask lots of questions to ensure that you are in the right hands. Perhaps the best option is to contact The National Foundation for Credit Counseling or their affiliate, Consumer Credit Counseling Services in your area.